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F I S C A L I M P A C T R E P O R T

SPONSOR Carraro

ORIGINAL DATE

LAST UPDATED

2-21-2007

HB

SHORT TITLE Low Interest Loans for Military Personnel

SB 833

ANALYST Dearing

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$5,000.0

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Veterans’ Services Department (VSD)

SUMMARY

Synopsis of Bill

Senate Bill 833 appropriates $5 million from the general fund to the Veterans’ Services

department. Senate Bill 833 creates a temporary suspense fund to issue low-interest loans to

active-duty U.S. service members and their families.

FISCAL IMPLICATIONS

The appropriation of $5 million contained in Senate Bill 833 is a recurring expense to the

General Fund. Any unexpended or unencumbered balance remaining at the end of FY07 shall

revert to the General Fund.

This bill creates a new fund and provides for continuing appropriations. The LFC has concerns

with including continuing appropriation language in the statutory provisions for newly created

funds, as earmarking reduces the ability of the legislature to establish spending priorities.

Senate Bill 833– Page

2

SIGNIFICANT ISSUES

Senate Bill 833 does not specify the rate or range of rates to be applied to disbursements from the

fund within the bill. Although the term “low-interest loans" is used in Senate Bill 833, there is

no base reference to what class of lending this would be referenced or “pegged" to. As written,

these loans would seem to be unsecured personal loans, which have above average rates in the

open market. It is unknown whether rates would be lower than market rates on average, as

related to the type of loan these substitute, or low in relation to the prime rate.

According to the Attorney General’s office:

Senate Bill 833 does not restrict the use of the money loaned. The repayment terms of such

loans, or the amount of collateral required, if any. The bill does not establish any eligibility

criteria for obtaining those “low-interest loans" other than the person requesting a loan be a

member of the armed forces on active duty and a resident of New Mexico, or their

“spouse". Given the broad provisions of the bill, the spouse of a member of the armed

forces on active duty may request a loan regardless of participation in that request by the

armed services member, even if they are separated, estranged, or undergoing a divorce.

Spouses do not have to be residents of New Mexico in order to obtain loans under the

provisions of this bill. Furthermore, it is unclear whether loans to individuals would be

considered community or separate debt.

The bill does not restrict loan eligibility to members of the New Mexico National Guard. It

is therefore distinguishable from NMSA Section 20-4-7.3 providing state funding for life

insurance premiums for members of the New Mexico National Guard. Because that section

is restricted to funding premiums for members of the New Mexico National Guard, it may

be construed as additional compensation provided those persons, in exchange for serving

the New Mexico military organization. Members of the New Mexico National Guard are

also considered “state employees" for the purpose of eligibility to purchase and participate

in group insurance coverage. See NMSA Section 20-4-10.

If the loans are written at less than market interest rate, regardless of need or indigency

status of the borrower, the loans could violate the provisions of Article IX Section 14 of the

New Mexico Constitution, commonly referred to as the anti-donation clause.

TECHNICAL ISSUES/ AMENDMENTS

The recipients of the benefit these loans will provide are intended to be active duty U.S. service

members. The funding would be more effective if placed with the department of Military

Affairs, as opposed to the Veterans’ department. Placement of this fund under this department’s

administration could have a significant workload implication due to responsibilities of disbursing

funds and collecting loan information and payments as the department would be working with an

entirely new client base.

The legislation does not extend the right to sue or be sued to the Veterans’ Services department.

It is thought the department shall need this power to collect on delinquent accounts.

PD/mt